It’s becoming increasingly clear that many of the businesses that have closed due to the COVID-19 pandemic will never reopen.
For those that are on the brink of failure, PPP loans have proved to be an important lifeline. One of the most attractive features of these loans is the possibility of debt forgiveness.
However, securing PPP loan forgiveness isn’t entirely straightforward.
Read on as we look at how you should go about applying for PPP loans and debt forgiveness.
What Is a PPP Loan?
A Paycheck Protection Program (PPP) loan is a type of business financing that the federal government introduced in response to the COVID-19 pandemic.
Under the CARES Act, the Small Business Administration (SBA) can issue loans to suitable small enterprises for as much as 2.5 times their payroll costs. The upper limit on the amount you can borrow is $10 million.
To qualify for a loan of this type, you must have fewer than 500 employees. Ineligible businesses include sex businesses, lobbyists, farms or ranches, and gambling businesses.
Business owners involved in unlawful activity, or who are delinquent on child support payments for more than 60 days, are also ineligible.
Because of the immediate need for these funds, the government put a streamlined application process in place. There are fewer requirements than with regular lending instruments.
The SBA does not issue PPP loans itself. Instead, it directs approved lenders like us to distribute PPP funds to eligible businesses.
Qualifying for PPP Loan Forgiveness
One of the reasons why PPP loans have proven so popular with businesses is that, under certain circumstances, the debt may be forgiven.
The first condition is that you spend the amount borrowed on approved expenses. That includes mortgage interest, payroll, rent obligations, utility bills, healthcare expenses, and wage replacement for tipped employees.
If you spend any of your PPP funding on unapproved costs, that amount will not be recoverable.
Also, only 25% of the amount you borrow can be spent on non-payroll costs if you wish to recover it.
Another condition for forgiveness is that you maintain your employee count and your payroll spend at pre-pandemic levels.
Unlike the EIDL program, the PPP allows borrowers to retain the entire amount owed.
How to Apply for PPP Loan Forgiveness
When applying for forgiveness of your PPP loan monies, you’ll need to include certain details. These include:
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Records of your employee numbers before and during the pandemic
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Records of pay rates before and during the pandemic
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Proof of payment of mortgage, rent, utility bills, or other relevant expenses
Failure to produce these is likely to affect your ability to secure debt forgiveness.
Securing the Right Financial Help at This Difficult Time
COVID-19 has had an effect on our economic landscape the likes of which we have not seen in a generation. Survival is not guaranteed, and many businesses will have to rely on financial aid if they are to make it through.
If your business needs a helping hand, a PPP loan might be your best option.
If you need a PPP loan, or any of our other types of financing, fill out an application today.